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Practitioners warned on traps with active asset reductions

Applying an active asset reduction in some situations may not be as tax-effective as a retirement exemption and should be carefully thought through by practitioners, says one industry expert.

While applying the active asset reduction can mean another 50 per cent discount off capital gains tax after the general discount, if the asset is in a superannuation fund, there may be other more effective exemptions or reductions that can be applied, Cooper and Co.'s director, Gordon Cooper, explained at the SMSF Association conference.

“You need to think about whether you want to claim the active asset reduction,” said Mr Cooper.

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“If you do claim it, you reduce the gain to 25 per cent. If the 25 per cent is less than the retirement exemption, you may be better off not claiming the active asset reduction so that you can get more money into a superannuation fund.”

It is also important to remember that while a share in a company title can be an active asset for CGT purposes, under the SIS regulations, the trustee must be a significant individual of that company.

“So the company title of the property would have to account for 20 per cent or more of the interest,” he said.

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.

Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: This email address is being protected from spambots. You need JavaScript enabled to view it.